June 2018 Market Review and Outlook

Jul 1, 2018

The US stock markets gyrated between gains and losses during the month of June, as investors assessed the impact of proposed trade tariffs, political turmoil in the Eurozone, and signals of a slowing global economy.

Most of the major US stock indices had positive returns for the month of June. The S&P 500 rose 2.9%, the Dow Jones Industrial average gained about .7%, and the tech-heavy NASDAQ posted a 6.3% gain. The Russell 2000 small cap index fell .3%. The NASDAQ’s gain was particularly noteworthy, as the index overcame a slump early in the quarter and has outperformed the S&P 500 in every quarter since the beginning of 2017. Furthermore, the NASDAQ recorded a series of all-time highs during June.

Sectors had varied results, with about half posting gains and half recording losses for the month of June. Real Estate (5.2%), Consumer Staples (3.63%), and Utilities (3.4%) were the best-performers, while Industrials (-5.22%), Financials (-4.35%), and Materials (-1.46%) were the worst-performing. Industrials and Materials were impacted by the trade tension. Financials benefitted from announcements from several banks that they planed to return capital to investors on the heels of positive results from the Federal Reserve’s annual stress test. However, gains were reversed due to profit-taking on the last day of the month.

Oil prices rose during the month, recording a gain of more than 20% for the year-to-date. West Texas Intermediate crude settled at $74.15 a barrel, as declines in US crude supplies, output concerns linked to Venezuela, Libya, Canada, and Iran contributed to oil’s price gains.

The yield on the 10-year closed the month at 2.86% as weakness in US stocks and emerging markets equities contributed to a flight to quality. Trade tensions and month end buying by money managers to maintain the average maturity of portfolios contributed to the yield’s gain. Investors are now unsure if the Federal Reserve will proceed with four rate hikes this year, as trade tensions may slow the pace of monetary tightening.

Economic indicators showed mixed results. The Chicago PMI gained 1.4 points to 64.1, the highest reading since January and the highest level in six months. Any reading above 50 indicates improving conditions. Meanwhile, the Consumer Confidence Index decreased in June to 126.4, down from 128.8 in May. The unemployment ticked up by .1% to 3.9%, after tying the lowest level in 50 years last month. The low rate reflects the strong economy and a tight labor market. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in May on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.8 percent. On the whole, these numbers reflect a healthy economy and support further interest rate increases.

With half of 2018 completed, investors may wonder which direction the markets will take in the remaining months. Small or no gains in the major indices have offered little reward for investors. There are clearly many positive indicators for the markets and the economy, but trade tariffs, interest rates, and geopolitical instability are valid concerns. But a properly allocated portfolio based on one’s risk profile and a long-term investment horizon continue to be the time-tested determinants for investment success.